By: Russ Kamp, Managing Director, Ryan ALM, Inc.

I recently produced the following on LinkedIn.com.

What PIVOT?

As we’ve been consistently saying, economies don’t roll into recessions with full employment and wage growth >4%. Recent economic releases continue to support the Fed’s aggressive rate increases with more likely to follow.

The US 2-year Treasury Note yield is back at 4.87% this morning. It is within 20 bps of the peak yield achieved earlier this year. Furthermore, it is up 110 bps since days following SVB’s collapse and the perceived end of the banking industry.

US interest rates are not high enough to thwart economic growth. If you were involved in our industry in the late ’70s and early ’80s you witnessed high double-digit rates.

There has perhaps never been a decade like the ’90s for investing in US equities – S&P 500 compounded at 18.5% for the decade. Yet, the 10-year Treasury yield averaged about 6.5% for that period ranging from a low of 4% (1998) to a high of 9.5% (1995). The 10-year US Treasury Note yield is ONLY 3.83% this morning, even after a 12 bps rise following the GDP upward revision. STOP looking at the movement from Covid-19 induced lows. Focus on the absolute level of US Treasuries at this time. It won’t cloud your judgment.

Following today’s release of ADP’s National Jobs Report (497,000 vs. 220,000 expectation), I produced a follow-up thought.

Interest rates are rising significantly this morning following the blowout jobs #. Just one more data point crushing the “pivot crowd”.

2-year Treasury Note yields are up 9 bps (as of 9:33 am) and sit at 5.04%. This is only 3 bps off the peak yield achieved earlier this year and 1.26% higher than the low achieved after SVB’s demise. US 10-year Treasury Note yield is back over 4% for the first time in months.

Good news: Higher yields are providing pension plan sponsors of all kinds (corp, public, and multiemployer) with the wonderful opportunity to significantly reduce risk by cash flow matching plan liabilities and assets at a very attractive Yield To Worst (YTW). Don’t let the markets dictate your funded status and contribution expenses. Take risk off the table today.